DEVELOPER TAKES A FINANCIAL DEAL FOR GROUND ZERO

By CHARLES V. BAGLI

Published: April 26, 2006

The developer Larry A. Silverstein announced yesterday that he had accepted the economic terms of a new deal at ground zero. The proposal reduces his overall role on the 16-acre site and clears the way for construction of the Freedom Tower, the tallest and most symbolically important of five towers planned for the site.

The deal calls for Mr. Silverstein to surrender control of the $2 billion Freedom Tower, along with more than one third of the ground zero site, to the Port Authority of New York and New Jersey. But he would retain the right to build three office towers on the most valuable parcels there.

Mr. Silverstein's announcement came six days after officials from the Pataki, Corzine and Bloomberg administrations presented the developer with a unified, take-it-or-leave-it offer in an attempt to end four months of frustrating and politically embarrassing struggle over the future of the World Trade Center site.

''This is about rebuilding; New York has waited too long,'' Mr. Silverstein, who is 74, said in a news conference in front of 7 World Trade Center, a 52-story skyscraper he recently rebuilt just north of ground zero. ''Make no mistake, we have made concessions. All the finger-pointing must stop. We must all work together to achieve our vital mission.''

Officials say that the agreement should spark corporate interest in the downtown business district and eliminate much of the uncertainty that executives say has hampered the resurgence of Lower Manhattan. The Port Authority board is expected to approve the conceptual framework for the deal at its meeting today, although it would not close until September.

After the news conference, Port Authority executives spoke to Mr. Silverstein, who leased the trade center six weeks before it was destroyed on 9/11, to resolve several relatively minor outstanding issues. They said that they hoped he would sign the agreement today before the board meeting. ''Nothing would make us happier than to see such an important step forward,'' Bud Perrone, a spokesman for Silverstein Properties, said last night.

But the turmoil at ground zero will not disappear completely. Rebuilding officials expect that the focus will now shift from commercial development at ground zero to what many regard as the cornerstone of ground zero, the troubled memorial project.

Consultants are expected to deliver a report in the next week showing that the cost of the memorial and a museum has swelled to as much as $800 million from $500 million. But until now, fund-raising has been sluggish at best. Gov. George E. Pataki's senior adviser for counter-terrorism has also raised concerns about security at the site.

The agreement at ground zero provides for the Port Authority to contribute $100 million to the memorial. But the projected cost of the memorial is now so high that planners may have to pare elements of the project, potentially touching off another round of squabbling.

Business groups like the Alliance for Downtown New York and the Partnership for New York City greeted yesterday's announcement with a sigh of relief. ''This is a shot in the arm for Lower Manhattan,'' said Eric Deutsch, president of the alliance. ''It removes the uncertainty and allows businesses to make long-term decisions to invest and relocate downtown.''

Yesterday, Mr. Silverstein, who has long insisted that he is the best person to rebuild ground zero, put the best face on what amounted to a capitulation. The developer, who has a penchant for endless negotiations, failed to come to terms on March 14, a deadline set by Governor Pataki. He is now agreeing to a far less generous deal; he acknowledged yesterday that he had had to make additional concessions.

In recent weeks, he was described as ''greedy'' by Charles A. Gargano, vice chairman of the Port Authority and New York's top economic development official, even as Mr. Silverstein complained about bargaining with rival government entities that, until recently, could not agree among themselves.

Mr. Silverstein pointedly chose to hold the news conference in front of his new office tower, the only one rebuilt at ground zero, noting that government had failed to rebuild other parts of the site. In responding to the government's latest offer, he said, ''In four business days, we did what it took government four months to accomplish.'' But, ultimately, he sued for peace.

''The plan of last week recognizes the unique public nature of this project and will ensure that the rebuilding moves forward expeditiously and with certainty,'' Governor Pataki said yesterday. ''The plan will make certain that the rebuilt World Trade Center will anchor the financial capital of the world and make our nation proud.''

Mr. Pataki, who has tied his legacy and his political ambitions to the Freedom Tower, can also claim victory, in that it appears that work can now proceed more quickly at ground zero. Mr. Silverstein will be paid a 1 percent fee to build the tower under the supervision of the Port Authority.

''Once he signs the agreement, Silverstein told us he can start building the Freedom Tower within a matter of days,'' Mr. Gargano said. ''We're hopeful that will happen.''

The announcement can also be seen as a victory for Anthony R. Coscia, the chairman of the Port Authority, and Mayor Michael R. Bloomberg, who effectively blocked a prior attempt by the Pataki administration to strike a deal with Mr. Silverstein. They feared that those agreements would have enriched the developer, while shifting most of the potential risk to the public.

Mr. Bloomberg repeatedly said that Mr. Silverstein did not have enough money to complete the $7 billion project. He raised the possibility that the developer would run out of money in 2009 after building only two towers, default on his lease and walk away with tens of millions in profits, while the project was left unfinished.

''It's not productive to look backwards,'' Deputy Mayor Daniel L. Doctoroff said yesterday. ''We all need to look forward and ensure that the goals we share of building out the site are achieved quickly and completely.''

Under the proposed deal, Mr. Silverstein is surrendering control of the Freedom Tower and a second site, Tower 5, to the Port Authority. Tower 5 will probably be sold to a residential developer. To put the Freedom Tower on a sound financial footing, the Pataki administration has pledged to contribute $250 million and round up a million square feet of leases, most likely with federal agencies. The leases would allow the authority to get a mortgage, which, combined with $970 million in insurance proceeds, would cover most of the estimated cost of the building.

Mr. Silverstein, in turn, would develop three office towers along Church Street, between Vesey and Liberty Streets. Construction could begin as soon as the authority completes the foundations on the eastern edge of the site, sometime next year.

To ensure that he can obtain mortgage money and build quickly, the city and the authority have offered to lease 1.2 million square feet of space in what is known as Tower 4. But the developer's fee would be limited to 2.5 percent, not the 5 percent he at first demanded.

In the coming days and weeks, the authority would work with Mr. Silverstein to design the shopping mall that is to be built in the base of two of the Church Street towers. Later, Mr. Silverstein would have the option of buying the retail part of the project from the authority.

Photo: Larry A. Silverstein leaving a news conference after he agreed to give up some redevelopment rights. (Photo by Ruby Washington/The New York Times)(pg. B6)

Chart/Map: ''Freedom Tower''
The Port Authority will gain control of the Freedom Tower and Tower 5.
Mr. Silverstein will retain his lease on Towers 2, 3 and 4, with a lower total rent payment.

Map of Manhattan highlights the area surrounding the Freedom Tower site. (pg. B6)